UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
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x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended August 31, 2010
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¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number: 000-22793
PRICESMART, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
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33-0628530
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(State of other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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9740 SCRANTON RD, SAN DIEGO, CA 92121
(Address of principal executive offices, Zip Code)
Registrant’s telephone number, including area code: (858) 404-8800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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Common Stock, $0.0001 Par Value
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting Company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer ¨
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Accelerated filer þ
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Non-accelerated filer ¨ (Do not check if a smaller reporting company)
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Smaller reporting company ¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The aggregate market value of the Registrant’s voting and non-voting common equity held by non-affiliates of the Registrant as of the last day of the Registrant's most recently completed second fiscal quarter was $375,398,825, based on the last reported sale price of $21.40 per share on the NASDAQ Global Select Market on February 26, 2010.
As of November 1, 2010, 29,897,909 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s Annual Report for the fiscal year ended August 31, 2010 are incorporated by reference into Part II of this Form 10-K.
Portions of the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on January 19, 2011 are incorporated by reference into Part III of this Form 10-K.
PRICESMART, INC.
ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED AUGUST 31, 2010
TABLE OF CONTENTS
Item 1. Business
This Form 10-K contains forward-looking statements concerning PriceSmart, Inc.'s (“PriceSmart” or the “Company”) anticipated future revenues and earnings, adequacy of future cash flow and related matters. These forward-looking statements include, but are not limited to, statements containing the words “expect,” “believe,” “will,” “may,” “should,” “project,” “estimate,” "anticpated," “scheduled” and like expressions, and the negative thereof. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements, including foreign exchange risks, political or economic instability of host countries, and competition as well as those risks described in the Company's U.S. Securities and Exchange Commission reports, including the risk factors referenced in this Form 10-K. See Part I, Item 1A “Risk Factors.”
PriceSmart's business consists primarily of international membership shopping warehouse clubs similar to, but smaller in size than, warehouse clubs in the United States. The number of warehouse clubs in operation, as of August 31, 2010 and 2009, the Company's ownership percentages and basis of presentation for financial reporting purposes by each country or territory are as follows:
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Country/Territory
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Number of
Warehouse Clubs
in Operation
(as of August 31, 2010)
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Number of
Warehouse Clubs
in Operation
(as of August 31, 2009)
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Anticipated warehouse
club openings
in FY 2011
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Ownership
(as of August 31, 2010)
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Basis of
Presentation
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During fiscal year 2008, as part of a litigation settlement, the Company purchased the remaining 49% minority interest of its Nicaragua subsidiary from PSC, S.A. Also, during the fourth quarter of fiscal year 2008, the Company acquired the remaining 10% minority interest of its Aruba subsidiary from Nithyananda Enterprises, thereby increasing its ownership percentage in its Aruba subsidiary to 100%.
During fiscal year 2009, the Company acquired property and completed the construction of a new Costa Rica warehouse club, the fifth warehouse club in that country, which opened in April 2009. Also during fiscal year 2009, the Company acquired property in Panama and Trinidad. The Company completed construction of a new Panama warehouse club ("Brisas") in April 2010. The Panama warehouse club, ("Los Pueblos") was closed and relocated to this new site. The Los Pueblos site is currently being leased with the lessee having an option to buy. The Company completed construction of a new warehouse club in Trinidad ("San Fernando") in April 2010, bringing the number of warehouse clubs in Trinidad to four. The Company constructed a new warehouse club on its 322,920 square foot site in Santo Domingo, Dominican Republic (“Arroyo Hondo”) which was acquired in December 2009. The Company opened this new warehouse club on November 5, 2010. It is the Company’s second warehouse club in Santo Domingo and the third in the Dominican Republic. On June 18, 2010 the Company entered into a contract to purchase approximately 210,000 square feet of land in Barranquilla, Colombia for approximately 11.7 billion Colombian Pesos. In consideration of certain additional land improvements the total purchase price thereafter was increased to 12.1 billion Colombian Pesos (the equivalent of approximately $6.7 million United States Dollars as of August 31, 2010). The Company plans to construct on this site a new membership warehouse club, expected to open during the summer of 2011. As of August 31, 2010 the Company has paid to the seller $55,000. The Company expects to acquire this land in November 2010, at which time the Company will pay approximately $4.3 million. Upon the completion of certain improvements, expected to occur by March 2011, the Company would then make the final payment of approximately $2.3 million.
During the third quarter of fiscal year 2010 the Company purchased the remaining 5% noncontrolling interest of its Trinidad subsidiary.
As of August 31, 2010, the total number of warehouse clubs in operation was 27 operating in 11 countries and one U.S. territory, in comparison to 26 warehouse clubs operating in 11 countries and one U.S. territory as of August 31, 2009. The average age of the 27 warehouse clubs in operation was 102 months as of August 31, 2010 and the average age of the 26 warehouse clubs in operation was 94 months as of August 31, 2009.
In addition to the warehouse clubs operated directly by the Company there is one warehouse club in operation in Saipan, Micronesia licensed to and operated by local business people, from which the Company earns a small royalty fee.
International Warehouse Club Business
The Company owns and operates U.S.-style membership shopping warehouse clubs through wholly owned subsidiaries operating in Latin America and the Caribbean using the trade name “PriceSmart.” The warehouse clubs sell basic high quality consumer goods at low prices to individuals and businesses. Sales are typically comprised of approximately 48% U.S. and other internationally sourced merchandise and approximately 52% locally sourced merchandise. By offering low prices on high quality brand name and private label merchandise to its members, the warehouse clubs seek to generate sufficient sales volumes to operate profitably at relatively low gross profit margins.
The Company ships its U.S. and other internationally sourced merchandise directly to its warehouse clubs or to the Company’s consolidation points (“distribution centers”). The goods are allocated for container-based shipment via ocean freight from the distribution centers to the Company’s individual warehouse clubs, thereby maximizing freight volume per shipment in order to lower supply chain costs.
The typical no-frills warehouse club-type buildings range in size from 48,000 to 84,000 square feet and are located primarily in urban areas to take advantage of dense populations and relatively higher levels of disposable income. Product selection includes perishable foods and basic consumer products. Ancillary services include food courts, tire centers, and photo centers. All shoppers pay an annual membership fee.
Business Strategy
PriceSmart's mission is to efficiently operate U.S.-style membership warehouse clubs in Latin America and the Caribbean that sell high quality merchandise at low prices to PriceSmart members and that provide fair wages and benefits to PriceSmart employees, as well as a fair return to PriceSmart stockholders. The Company sells U.S. brand-name, private label, and locally sourced products to its small business and consumer members in a warehouse club format providing high value to its members. By focusing on providing high value on quality merchandise in a low cost operating environment, the Company seeks to grow sales volume and increase membership, which in turn will allow for further efficiencies, resulting in price reductions and improved value to its members.
Membership Policy
PriceSmart believes that membership reinforces customer loyalty. In addition, membership fees provide a continuing source of revenue, which is passed on to its members in the form of lower prices on merchandise. PriceSmart has two types of members: Business and Diamond (individual).
Businesses qualify for Business membership. PriceSmart promotes Business membership through its marketing programs and by selling products primarily targeting small businesses like restaurants, hotels and convenience stores. Business members pay an annual membership fee of approximately $25 for a primary and secondary membership card and approximately $10 for additional add-on membership cards. Diamond (individual) members generally pay an annual membership fee of approximately $20 and approximately $10 for an add-on membership card. Currently, the average fee per membership account is approximately $29.
The Company recognizes membership income over the 12 month term of the membership. Deferred membership income is presented separately on the consolidated balance sheet and totaled $9.7 million and $8.3 million as of August 31, 2010 and 2009, respectively. PriceSmart's membership agreements contain an explicit right to refund if its customers are dissatisfied with their membership. The Company's historical rate of membership fee refunds has been approximately 0.5% of membership income.
Expansion Plans
The Company focuses its management attention on improving the operations of its current locations and believes that its existing sites provide the opportunity for improved sales and profitability. However, the Company continues to evaluate various options for expansion, particularly in the countries in which it has already established a strong market presence. In that regard, the Company announced in fiscal year 2009 that it had entered into agreements to acquire properties in Panama, Trinidad and Costa Rica for the construction of new warehouse clubs. The new Costa Rica warehouse club, the fifth PriceSmart warehouse club in that country, opened in April 2009. The Company completed construction of a new Panama warehouse club ("Brisas") in April 2010. The Panama warehouse club ("Los Pueblos") was closed and relocated to this new site. The Los Pueblos site is currently being leased with the lessee having an option to buy. The Company completed construction of a new warehouse club in Trinidad ("San Fernando") in April 2010, bringing the number of warehouse clubs in Trinidad to four. The Company constructed a new warehouse club on its 322,920 square foot site in Santo Domingo, Dominican Republic (“Arroyo Hondo”) which was acquired in December 2009. The Company opened this new warehouse club on November 5, 2010. It is the Company’s second warehouse club in Santo Domingo and the third in the Dominican Republic. On June 18, 2010 the Company entered into a contract to purchase approximately 210,000 square feet of land in Barranquilla, Colombia for approximately 11.7 billion Colombian Pesos. In consideration of certain additional land improvements the total purchase price thereafter was increased to 12.1 billion Colombian Pesos (the equivalent of approximately $6.7 million United States Dollars as of August 31, 2010). The Company plans to construct on this site a new membership warehouse club, expected to open during the summer of 2011. As of August 31, 2010 the Company has paid to the seller $55,000. The Company expects to acquire this land in November 2010, at which time the Company will pay approximately $4.3 million. Upon the completion of certain improvements, expected to occur by March 2011, the Company would then make the final payment of approximately $2.3 million. The Company believes that Colombia could be a market for multiple PriceSmart warehouse clubs.
Related to the acquired sites in Panama and Costa Rica, the Company entered into joint venture agreements with local business people in each country. These joint ventures purchased additional land adjacent to the Company’s warehouse club sites and are developing commercial shopping centers.
The Company is also expanding its leased distribution center located in Miami. The Company recently negotiated its existing lease, adding approximately 74,000 square feet of warehouse space adjacent to its primary distribution facility. The Company intends to utilize this area to consolidate its dry, frozen and refrigerated merchandise distribution facilities, which would permit the Company to more efficiently service the PriceSmart warehouse club locations and realize savings in distribution expenses by improving the flow of merchandise through the facility and reducing handling costs.
International Licensee Business
There is one facility in operation in Saipan, Micronesia licensed to and operated by local business people at the end of fiscal year 2010, through which the Company earns a small royalty fee.
Intellectual Property Rights
It is the Company's policy to obtain appropriate proprietary rights protection for trademarks by filing applications for registration eligible trademarks with the U.S. Patent and Trademark Office, and in certain foreign countries. In addition, the Company relies on copyright and trade secret laws to protect its proprietary rights. The Company attempts to protect its trade secrets and other proprietary information through agreements with its joint ventures, employees, consultants and suppliers and other similar measures. There can be no assurance, however, that the Company will be successful in protecting its proprietary rights. While management believes that the Company's trademarks, copyrights and other proprietary know-how have significant value, changing technology and the competitive marketplace make the Company's future success dependent principally upon its employees' technical competence and creative skills for continuing innovation.
There can be no assurance that third parties will not assert claims against the Company with respect to existing and future trademarks, trade names, domain names, sales techniques or other intellectual property matters. In the event of litigation to determine the validity of any third-party's claims, such litigation could result in significant expense to the Company and divert the efforts of the Company's management, whether or not such litigation is concluded in favor of the Company.
In August 1999, the Company and Associated Wholesale Grocers, Inc. (“AWG”) entered into an agreement regarding the trademark “PriceSmart” and related marks containing the name “PriceSmart.” The Company agreed not to use the “PriceSmart” mark or any related marks containing the name “PriceSmart” in connection with the sale or offer for sale of any goods or services within AWG's territory of operations, including the following ten states: Kansas, Missouri, Arkansas, Oklahoma, Nebraska, Iowa, Texas, Illinois, Tennessee and Kentucky. The Company, however, may use the mark “PriceSmart” or any mark containing the name “PriceSmart” on the internet or any other global computer network whether within or outside such territory, and in any national advertising campaign that cannot reasonably exclude the territory, and the Company may use the mark in connection with various travel services. AWG has agreed not to oppose any trademark applications filed by the Company for registration of the mark “PriceSmart” or related marks containing the name “PriceSmart,” and AWG has further agreed not to bring any action for trademark infringement against the Company based upon the Company's use outside the territory (or with respect to the permitted uses inside the territory) of the mark “PriceSmart” or related marks containing the name “PriceSmart.”
Competition
The Company’s international merchandising business competes with a wide range of international, regional, national and local retailers and wholesalers, including supermarkets, supercenters, general merchandise chains and specialty chains. The Company’s industry is highly competitive, based on factors such as price, merchandise quality and selection, warehouse location and member service. Some of the Company’s competitors may have greater resources, buying power and name recognition. Additional competitors might decide to enter the markets in which the Company operates, and the Company’s existing competitors might compete more effectively against the Company including establishing a club format which might directly compete with the Company. The Company might be required to implement price reductions in order to remain competitive if any of the Company’s competitors reduce prices in any of the Company’s markets.
Employees
As of August 31, 2010, the Company and its consolidated subsidiaries had a total of 4,728 employees. Approximately 95% of the Company's employees were employed outside of the United States.
Seasonality
Historically, the Company's merchandising businesses have experienced holiday retail seasonality in their markets. In addition to seasonal fluctuations, the Company's operating results fluctuate quarter-to-quarter as a result of economic and political events in markets served by the Company, the timing of holidays, weather, the timing of shipments, product mix, and currency effects on the cost of U.S.-sourced products which may make these products more or less expensive in local currencies and therefore more or less affordable. Because of such fluctuations, the results of operations of any quarter are not indicative of the results that may be achieved for a full fiscal year or any future quarter. In addition, there can be no assurance that the Company's future results will be consistent with past results or the projections of securities analysts.
In evaluating the Company’s business, you should consider the following discussion of risk factors, in addition to other information contained in this report as well as the Company’s other public filings with the U.S. Securities and Exchange Commission.
The Company's financial performance is dependent on international operations, which exposes it to various risks. The Company's international operations account for nearly all of the Company's total sales. The Company's financial performance is subject to risks inherent in operating and expanding the Company's international membership business, which include: (i) changes in and interpretation of tariff and tax laws and regulations, as well as inconsistent enforcement of laws and regulations; (ii) the imposition of foreign and domestic governmental controls; (iii) trade restrictions; (iv) greater difficulty and costs associated with international sales and the administration of an international merchandising business; (v) thefts and other crimes; (vi) limitations on U.S. company ownership in certain foreign countries; (vii) product registration, permitting and regulatory compliance; (viii) volatility in foreign currency exchange rates; (ix) the financial and other capabilities of the Company's joint venturers and licensees; and (x) general political as well as economic and business conditions. For example, during fiscal year 2009, Honduras experienced a period of political unrest resulting in street demonstrations and government mandated curfews which caused the Company’s Honduras operations to experience some disruption, with store hours being reduced consistent with the curfews. Sales, banking transactions and merchandise shipments were not materially affected. However, a situation similar to that which occurred in Honduras could happen elsewhere and result in disruption of the Company’s sales, banking transactions, operations, merchandise shipments, and currency exchange rates, any of which could have a material adverse effect on the Company's business and results of operations.
Any failure by the Company to manage its widely dispersed operations could adversely affect the Company's business. As of August 31, 2010, the Company had in operation 27 warehouse clubs in 11 countries and one U.S. territory (five in Costa Rica; four each in Panama and Trinidad; three in Guatemala; two each in the Dominican Republic, El Salvador and Honduras; and one each in Aruba, Barbados, Jamaica, Nicaragua and the United States Virgin Islands). The Company constructed a new membership warehouse club in the Dominican Republic (“Arroyo Hondo”), that opened on November 5, 2010. The Company also plans to construct a new membership warehouse club in Colombia that is expected to open during the summer of 2011. The Company will need to continually evaluate the adequacy of the Company's existing personnel, systems and procedures, including warehouse management and financial and inventory control. Moreover, the Company will be required to continually analyze the sufficiency of the Company's inventory distribution channels and systems and may require additional or expanded facilities in order to support the Company's operations. The Company may not adequately anticipate all the changing demands that will be imposed on these systems. Any inability or failure to retain effective personnel or to update the Company's internal systems or procedures as required could have a material adverse effect on the Company's business, financial condition and results of operations.
The Company faces significant competition. The Company's international merchandising businesses compete with exporters, wholesalers, local retailers and trading companies in various international markets. Some of the Company's competitors may have greater resources, buying power and name recognition. There can be no assurance that additional competitors will not decide to enter the markets in which the Company operates or that the Company's existing competitors will not compete more effectively against the Company including establishing a club format which might directly compete with the Company. The Company may be required to implement price reductions in order to remain competitive should any of the Company's competitors reduce prices in any of the Company's markets. Moreover, the Company's ability to operate profitably in its markets, particularly small markets, may be adversely affected by the existence or entry of competing warehouse clubs or discount retailers.
The Company faces difficulties in the shipment of and inherent risks in the acquisition and importation of merchandise to its warehouse clubs. The Company's warehouse clubs typically import nearly half or more of the merchandise that they sell, which originates from various countries and is transported over long distances, typically over water, which results in: (i) substantial lead times needed between the procurement and delivery of product, thus complicating merchandising and inventory control methods; (ii) the possible loss of product due to theft or potential damage to, or destruction of, ships or containers delivering goods; (iii) product markdowns as a result of it being cost prohibitive to return merchandise upon importation; (iv) product registration, tariffs, customs and shipping regulation issues in the locations the Company ships to and from; and (v) ocean freight and duty costs. Moreover, each country in which the Company operates has different governmental rules and regulations regarding the importation of foreign products. Changes to the rules and regulations governing the importation of merchandise may result in additional delays, costs or barriers in the Company's deliveries of products to its warehouse clubs or may affect the type of products it selects to import. In addition, only a limited number of transportation companies service the Company's regions. The inability or failure of one or more key transportation companies to provide transportation services to the Company, any collusion among the transportation companies regarding shipping prices or terms, changes in the regulations that govern shipping tariffs or the importation of products, or any other disruption in the Company's ability to transport the Company's merchandise could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the Company acquires merchandise sold within its warehouse clubs from a number of suppliers, including large multi-national suppliers who sometimes also operate through local subsidiaries and distributors. The manner in which the Company acquires merchandise, either directly from the parent company or through a local subsidiary or distributor, is subject to change from time to time based on changes initiated by the supplier and for reasons beyond the control of the Company. Significant changes or disruptions in how the Company acquires merchandise from these suppliers could negatively affect the Company's access to such merchandise, as well as the cost of merchandise to the Company and hence its members, which could have a material adverse effect on the Company's business, financial condition and results of operations.
The Company is exposed to weather and other natural disaster risks. The Company's operations are subject to the volatile weather conditions and natural disasters such as earthquakes and hurricanes, which are encountered in the regions in which the Company's warehouse clubs are located and which could result in significant damage to, destruction of, or temporary closure of, the Company's warehouse clubs. Warehouse club closures associated with heavy rains, local flooding and government advisories to stay off the roads during a natural disaster, such as a hurricane, could result in many days of lost sales. Similar risks could negatively affect the Company’s business if they were to impact any of various points on its international merchandise distribution chain, such as distribution centers or ports of origin or destination. Losses from business interruption may not be adequately compensated by insurance and could have a material adverse effect on the Company's business, financial condition and results of operations.
General economic conditions could adversely impact the Company’s business in various respects. A further slowdown in the U.S. and international economies or other economic conditions affecting discretionary consumer spending, such as employment rates, business conditions, inflation, fuel and energy costs, consumer debt levels, lack of available credit, interest rates, tax rates, consumer spending patterns, customer preferences and other economic factors in each of the Company's foreign markets may adversely affect its business by reducing overall consumer purchasing power and could negatively impact the Company's growth, sales and profitability. In addition, a significant decline in the economies of the countries in which the Company’s warehouse clubs are located may lead to increased governmental ownership or regulation of the economy, higher interest rates, increased barriers to entry such as higher tariffs and taxes, and reduced demand for goods manufactured in the United States. Factors such as declining expatriate remittances, reduced tourism, and less foreign investment could negatively impact the economies of Latin America and the Caribbean. The current general global economic instability, the potential for further economic dislocations, the impact of a global recession and its duration, the potential for failures or realignments of financial institutions and the related impact on available credit could have a material adverse effect on the Company's business, financial condition and results of operations.
A few of the Company's stockholders own approximately 39% of the Company's voting stock, which may make it difficult to complete some corporate transactions without their support and may impede a change in control. Robert E. Price, the Company’s Chairman of the Board, and affiliates of Mr. Price and his late father Sol Price, including Price Charities, The Price Group, LLC and various trusts, collectively beneficially own approximately 39% of the Company’s outstanding shares of common stock. As a result of their beneficial ownership, these stockholders have the ability to significantly affect the outcome of all matters submitted to the Company's stockholders for approval, including the election of directors. In addition, this ownership could discourage the acquisition of the Company's common stock by potential investors and could have an anti-takeover effect, possibly depressing the trading price of the Company's common stock.
The loss of key personnel could harm the Company's business. The Company depends to a large extent on the performance of its senior management team and other key employees, such as U.S. expatriates in certain locations where the Company operates. The loss of the services of any members of the Company's senior management or other key employees could have a material adverse effect on the Company's business, financial condition and results of operations.
The Company is subject to volatility in foreign currency exchange rates. The Company conducts operations in Latin America and the Caribbean, and as such is subject to both economic and political instabilities that cause volatility in foreign currency exchange rates or weak economic conditions. As of August 31, 2010, the Company had a total of 27 warehouse clubs operating in 11 foreign countries and one U.S. territory, 20 of which operate under currencies other than the U.S. dollar. The Company also expects to acquire land in Colombia, where it plans to build a membership warehouse club scheduled to open in the summer of 2011. For fiscal year 2010, approximately 78% of the Company's net warehouse club sales were in foreign currencies. The Company may enter into additional foreign countries in the future or open additional locations in existing countries, which may increase the percentage of net warehouse sales denominated in foreign currencies.
Foreign currencies in most of the countries where the Company operates have historically devalued against the U.S. dollar and are expected to continue to devalue. For example, during fiscal year 2009 and fiscal year 2008, Guatemala and Jamaica experienced an 11% and a 23% devaluation, respectively. However, this devaluation trend was reversed in fiscal year 2010, as Costa Rica, Jamaica, and Guatemala experienced a 14%, 4% and 3% strengthening of their currencies, respectively, between the end of fiscal year 2009 and the end of fiscal year 2010. Foreign exchange transaction gains (losses), including repatriation of funds, which are included as part of the costs of goods sold in the consolidated statements of income, for fiscal years 2010, 2009 and 2008 were approximately $1.5 million, ($1.4 million) and $1.6 million, respectively.
The Company faces the risk of exposure to product liability claims, a product recall and adverse publicity. The Company markets and distributes products purchased from third-party suppliers and products prepared by the Company for resale, including meat, dairy and other food products which exposes the Company to the risk of product liability claims, a product recall and adverse publicity. The Company may inadvertently redistribute food products or prepare food products that are contaminated, which may result in illness, injury or death if the contaminants are not eliminated by processing at the food service or consumer level. The Company generally seeks contractual indemnification and insurance coverage from its major suppliers for product purchased from third-party suppliers and carries product liability insurance for product prepared by the Company. However, if the Company does not have adequate insurance or contractual indemnification available, product liability claims relating to products that are contaminated or otherwise harmful could have a material adverse effect on the Company's ability to successfully market its products and on the Company's business, financial condition and results of operations. In addition, even if a product liability claim is not successful or is not fully pursued, the negative publicity surrounding a product recall or any assertion that the Company's products caused illness or injury could have a material adverse effect on the Company's reputation with existing and potential customers and on the Company's business, financial condition and results of operations.
Potential future impairments of long lived assets could adversely affect the Company's future results of operations and financial position. Long-lived assets are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be measured and recognized if the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset. If the carrying amount of the asset were determined to be impaired, an impairment loss to write-down the carrying value of the asset to fair value by using quoted market prices, when available, would be required. When a quoted market price is not available, an estimated fair value would be determined through other valuation techniques. The Company has used projected cash flows to reflect the expected commercial, competitive and other factors related to its long-lived assets. These future tests may result in a determination that these assets have been impaired. If at any time the Company determines that an impairment has occurred, it will be required to reflect the impaired value as a charge, resulting in a reduction in earnings in the quarter such impairment is identified and a corresponding reduction in the Company’s net asset value.
For example, in fiscal year 2009, the Company recorded an impairment charge of approximately $169,000 on point of sales hardware and warehouse storage and packaging equipment. This was due to the Company’s decisions to update its point of sales equipment and outsource the bulk packaging of product due to changes in the handling and storage of product at its warehouse club locations. The Company recorded approximately $18,000 for impairment charges in fiscal year 2010 related to the impairment of warehouse handling equipment. A material reduction in earnings resulting from such a charge could cause the Company to fail to be profitable in the period in which the charge is taken or otherwise to fail to meet the expectations of investors and securities analysts, which could cause the price of the Company's stock to decline.
Write-offs of goodwill and other intangible assets could adversely affect the Company's future results of operations and financial position. Goodwill and intangible assets deemed to have indefinite lives are not amortized but instead are subject to annual impairment tests. As of August 31, 2010, the Company had goodwill of approximately $37.5 million. The Company performed its impairment test on goodwill as of August 31, 2010 and August 31, 2009, and no impairment losses were recorded. In the future, the Company will test for impairment at least annually. Such tests may result in a determination that these assets have been impaired. If at any time the Company determines that an impairment has occurred, the Company will be required to reflect the impaired value as a part of operating income, resulting in a reduction in earnings in the period such impairment is identified and a corresponding reduction in the Company's net asset value. A material reduction in earnings resulting from such a charge could cause the Company to fail to be profitable or increase the amount of its net loss in the period in which the charge is taken or otherwise fail to meet the expectations of investors and securities analysts, which could cause the price of the Company's stock to decline.
The Company faces increased compliance risks associated with compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires management of public companies to evaluate, and the independent auditors to attest to, the effectiveness of internal control over financial reporting. The Company’s internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and include those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the Company’s transactions and the dispositions of its assets; (2) provide reasonable assurance that the Company’s transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures are being made only in accordance with appropriate authorizations; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its financial statements. Because of their inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Any failure to effectively implement new or improved internal controls, or to resolve difficulties encountered in their implementation, could harm the Company's operating results, cause it to fail to meet reporting obligations, result in management being required to give a qualified assessment of the Company's internal controls over financial reporting or the Company's independent auditors providing an adverse opinion regarding their attestation of the effectiveness of the Company’s internal controls over financial reporting. Any such result could cause investors to lose confidence in the Company's reported financial information, which could have a material adverse effect on the Company's stock price.
If remediation costs or hazardous substance contamination levels at certain properties for which the Company maintains financial responsibility exceed management’s current expectations, the Company’s financial condition and results of operations could be adversely impacted. In connection with its spin-off from Price Enterprises, Inc., or PEI, in 1997, the Company agreed to indemnify PEI for all of PEI's liabilities (including indemnification obligations for environmental liabilities) arising out of PEI's prior ownership of certain properties. The Company's ownership of real properties and its agreement to indemnify PEI could subject it to certain environmental liabilities. Certain of these properties are located in areas of current or former industrial activity, where environmental contamination may have occurred. For example, PEI sold an unimproved, 12.9-acre site located in Meadowlands, New Jersey in August 1995. A prior owner used this site as a debris disposal area. Elevated levels of heavy metals (including a small area contaminated with polychlorinated biphenyl) and petroleum hydrocarbons are present in soil at the Meadowlands site. To date, the Company has not been advised that PEI has been notified by any governmental authority, and is not otherwise aware, of any material noncompliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with the Meadowlands site. Nevertheless, PEI's previous ownership of the Meadowlands site creates the potential of liability for remediation costs associated with groundwater beneath the site. The Company also retains certain environmental indemnification obligations with respect to a parcel of land in Silver City, New Mexico, which PEI sold in March 1996 but agreed to retain responsibility for certain environmental matters. This site contains petroleum hydrocarbons in the soil and groundwater. There are no known receptors (groundwater users) down gradient of the Silver City site and the extent of soil and groundwater contamination is limited and has been reducing in mass and extent under naturally attenuating processes. The Company continues to monitor the soil and groundwater at this property as may be required by local authorities. If the Company were to incur costs for remediating contamination at the Meadowlands or Silver City sites (or any other site for which the Company maintains environmental responsibility) which exceed management’s current expectations, the Company’s financial condition and results of operations could be adversely impacted.
Available Information
The PriceSmart, Inc. website or internet address is www.pricesmart.com. On this website the Company makes available, free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, and the annual report to the stockholders as soon as reasonably practicable after electronically filing such material with or furnishing it to the U.S. Securities and Exchange Commission (SEC). The Company’s SEC reports can be accessed through the investor relations section of its website under “SEC Filings.” All of the Company’s filings with the SEC may also be obtained at the SEC’s Public Reference Room at Room 1580, 100 F Street NE, Washington, DC 20549. For information regarding the operation of the SEC’s Public Reference Room, please contact the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The Company will make available its annual report on Form 10-K and its annual Proxy Statement for the fiscal year 2010 at the internet address http://materials.proxyvote.com/741511 as soon as reasonably practicable after electronically filing such material with or furnishing it to the SEC.
None.
At August 31, 2010, PriceSmart operated 27 membership warehouse clubs.
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Number of warehouse clubs
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Own land
and building
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Lease land
and/or building
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Anticipated warehouse
club openings in FY 2011
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(1)
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On June 18, 2010 the Company entered into a contract to purchase approximately 210,000 square feet of land in Barranquilla, Colombia for approximately 11.7 billion Colombian Pesos. In consideration of certain additional land improvements the total purchase price thereafter was increased to 12.1 billion Colombian Pesos (the equivalent of approximately $6.7 million United States Dollars as of August 31, 2010). The Company plans to construct on this site a new membership warehouse club, expected to open during the summer of 2011. As of August 31, 2010 the Company has paid to the seller $55,000. The Company expects to acquire this land in November 2010, at which time the Company will pay the additional sum of approximately $4.3 million. Upon the completion of certain improvements, expected to occur by March 2011, the Company would then make the final payment of approximately $2.3 million.
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(2)
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The former warehouse club Los Pueblos was relocated to a new site in April 2010. The Los Pueblos site is currently being leased with the lessee having an option to buy. It is not included in the numbers presented.
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(3)
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The Company constructed a new warehouse club on its 322,920 square foot site in Santo Domingo, Dominican Republic, which was acquired in December 2009. The Company opened this new warehouse club on November 5, 2010.
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(4)
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The Company acquired the land and building formerly leased in Barbados on November 15, 2007 (fiscal year 2008).
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(5)
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The former club located in Guam is not included; this warehouse club was closed in fiscal year 2004. The respective land and building is currently subleased to a third-party.
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At August 31, 2010, the Company's warehouse clubs occupied a total of approximately 1,768,999 square feet of which 420,647 square feet were on leased property. The following is a summary of the warehouse clubs and Company facilities located on leased property:
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Approximate
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Remaining
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Square
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Current Lease
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Option(s)
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Location (1)
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Facility Type
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Date Opened
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Footage
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Expiration Date
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to Extend
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Santo Domingo, Dominican Republic
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(1)
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The former club located in Guam is not included; this warehouse club was closed in fiscal year 2004. The land and building are currently subleased to a third-party.
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(2)
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The Company renegotiated a lease extension commencing on April 1, 2010 for a total of 65 months ending on August 31, 2015 for its corporate headquarters site.
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(3)
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The Company renegotiated its existing lease for its primary distribution center in Miami, extending the term and adding approximately 74,000 square feet of warehouse space adjacent to this facility that will be ready for use following related construction activities that are expected to be completed during the second half of fiscal year 2011.
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We are often involved in certain claims arising in the ordinary course of business seeking monetary damages and other relief. Based upon information currently available to us, none of these claims is expected to have a material adverse effect on our business, financial condition or results of operations.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The information required by Item 5 is incorporated herein by reference to PriceSmart's Annual Report to Stockholders for the fiscal year ended August 31, 2010 under the heading “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”
The information required by Item 6 is incorporated herein by reference to PriceSmart's Annual Report to Stockholders for the fiscal year ended August 31, 2010 under the heading “Selected Financial Data.”
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The information required by Item 7 is incorporated herein by reference to PriceSmart's Annual Report to Stockholders for the fiscal year ended August 31, 2010 under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations.”
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The information required by Item 7A is incorporated herein by reference to PriceSmart's Annual Report to Stockholders for the fiscal year ended August 31, 2010 under the heading “Quantitative and Qualitative Disclosures about Market Risk.”
Item 8. Financial Statements and Supplementary Data
The information required by Item 8 is incorporated herein by reference to PriceSmart's Annual Report to Stockholders for the fiscal year ended August 31, 2010 under the heading “Financial Statements and Supplementary Data.”
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
(a) Evaluation of disclosure controls and procedures.
As of August 31, 2010, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). These disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in its periodic reports with the SEC is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that the information is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. The design of any disclosure controls and procedures also is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based upon their evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this Annual Report on Form 10-K.
(b) Management’s report on internal control over financial reporting
Internal control over financial reporting refers to the process designed by, or under the supervision of, the Company’s principal executive officer and principal financial officer, and effected by its board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles, and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles and that receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Management is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision, and with the participation, of the Company’s management, including its principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting. Management has used the framework set forth in the report entitled “Internal Control—Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of its internal control over financial reporting. Based on its evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of August 31, 2010, the end of its most recent fiscal year. Ernst & Young LLP, the Company’s independent registered public accounting firm, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of August 31, 2010, as stated in their report which is included herein.
(c) Changes in internal control over financial reporting.
There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act), during the fiscal year ended August 31, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as Exhibit 31.1 and 31.2 to this report.
Not applicable.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of PriceSmart, Inc.
We have audited PriceSmart, Inc.’s internal control over financial reporting as of August 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). PriceSmart, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, PriceSmart, Inc. maintained, in all material respects, effective internal control over financial reporting as of August 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2010 consolidated financial statements of PriceSmart, Inc. and our report dated November 9, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
San Diego, California
November 9, 2010
Item 10. Directors, Executive Officers and Corporate Governance
PriceSmart has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer, controller, and to all of its other officers, directors, employees and agents. The code of ethics is available on PriceSmart's web site at http://pricesmart.com/Investor/Corporate-Governance/Conduct.aspx. PriceSmart intends to disclose on its website future amendments to, or waivers from, certain provision of its code of ethics within four business days following the date of such amendment or waiver.
The additional information required by Item 10 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders under the headings “Election of Directors,” “Information Regarding Directors,” “Information Regarding the Board,” “Executive Officers of the Company” and “Compliance with Section 16(a) of the Exchange Act.”
The information required by Item 11 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders under the heading “Compensation Discussion And Analysis.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders under the headings “Securities Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information.”
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders under the headings “Certain Transactions” and “Information Regarding Directors.”
Item 14. Principal Accounting Fees and Services
The information required by Item 14 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders under the heading “Independent Registered Public Accounting Firm.”
Item 15. Exhibits, Financial Statement Schedules
(a) The documents listed in the following table, which are included in its Annual Report to Stockholders, are incorporated herein by reference to the portions of this Annual Report on Form 10-K filed as Exhibit 13.1 hereto.
(1) and (2) Financial Statements
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Schedules not included herein have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.
(3) The following exhibits are filed as part of this Form 10-K and this list includes the Exhibit Index.
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Exhibit
Number
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Description
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3.1(1)
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Amended and Restated Certificate of Incorporation of the Company.
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3.2(33)
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Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company.
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3.3(30)
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Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company.
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3.4(1)
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Amended and Restated Bylaws of the Company.
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3.5(34)
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Amendment to Amended and Restated Bylaws of the Company.
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4.1(36)
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Specimen of Common Stock certificate.
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10.1(1)**
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1997 Stock Option Plan of PriceSmart, Inc.
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10.2(a)(39)
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Settlement Agreement and General Release of All Claims, entered into on August 5, 2005, by and among William Go, E-Class Corporation, PSMT Philippines, Inc., National Import and Export Company, San Marino International Corporation, Arcadia International Corporation, Christine Merchandising, Inc. and PriceSmart, Inc.
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10.2(b)(48)
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International Loan Swap Agreement with Citibank, N.A. dated as of February 13, 2008.
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10.2(c)(48)
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Settlement Agreement and Release entered into as of February 8, 2008 by and among PriceSmart, Inc. and PSMT entities (collectively known as “PriceSmart”) and PSC, S.A. and PSC entities (collectively known as “PSC Parties”).
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10.2(d)(53)
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Loan Facility Agreement between PriceSmart (Trinidad) Limited and First Caribbean International Bank (Trinidad & Tobago) Limited dated February 19, 2009.
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10.2(e)(55)
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Loan Agreement dated August 13, 2009 between PriceSmart, SA. and the Bank of Nova Scotia.
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10.3(a)(3)**
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Employment Agreement between Price Enterprises, Inc. and Robert M. Gans, dated September 20, 1994.
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10.3(b)(4)**
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Third Amendment to Employment Agreement between Price Enterprises, Inc. and Robert M. Gans, dated April 28, 1997.
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10.3(c)(1)**
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Fourth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of September 2, 1997.
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10.3(d)(5)**
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Fifth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of March 31, 1999.
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10.3(e)(6)**
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Sixth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of November 22, 1999.
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10.3(f)(6)**
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Seventh Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of July 18, 2000.
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10.3(g)(7)**
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Eighth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of September 26, 2001.
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10.3(h)(7)**
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Amendment of Employment Agreement between the Company and Robert M. Gans, dated as of October 16, 2001.
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10.3(i)(8)**
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Ninth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of November 19, 2002.
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10.3(j)(9)**
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Tenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of January 22, 2003.
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10.3(k)(10)**
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Eleventh Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of July 24, 2003.
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10.3(l)(46)**
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Twelfth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of September 24, 2004.
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10.3(m)(37)**
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Thirteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of February 10, 2005.
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10.3(n)(40)**
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Fourteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of September 26, 2005.
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10.3(o)(42)**
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Fifteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of March 1, 2006.
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10.3(p)(47)**
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Sixteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of September 25, 2006.
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10.3(q)(44)**
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Seventeenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of January 1, 2007.
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10.3(r)(50)**
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Eighteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of October 1, 2007.
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10.3(s)(48)**
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Nineteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of January 1, 2008.
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10.3(t)(51)**
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Twentieth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of October 1, 2008.
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10.3(u)(52)**
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Twenty First Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of November 13, 2008.
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10.3(v)(53)**
|
Twenty Second Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of January 1, 2009.
|
| |
|
|
10.3(w)(56)**
|
Twenty Third Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of October 1, 2009.
|
| |
|
|
10.3(x)(57)**
|
Twenty Fourth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of January 1, 2010.
|
| |
|
|
10.5(12)
|
Form of Indemnity Agreement.
|
| |
|
|
10.8(a)(16)**
|
Employment Agreement between the Company and Thomas D. Martin, dated March 31, 1998.
|
| |
|
|
10.8(b)(5)**
|
First Amendment to Employment Agreement between the Company and Thomas D. Martin, dated March 31, 1999.
|
| |
|
|
10.8(c)(6)**
|
Second Amendment of Employment Agreement between the Company and Thomas D. Martin, dated November 22, 1999.
|
| |
|
|
10.8(d)(13)**
|
Third Amendment of Employment Agreement between the Company and Thomas Martin dated January 11, 2000.
|
|
10.8(e)(17)**
|
Fourth Amendment of Employment Agreement between the Company and Thomas Martin dated January 24, 2001.
|
| |
|
|
10.8(f)(7)**
|
Amendment of Employment Agreement between the Company and Thomas Martin dated October 16, 2001.
|
| |
|
|
10.8(g)(14)**
|
Fifth Amendment of Employment Agreement between the Company and Thomas Martin, dated January 16, 2002.
|
| |
|
|
10.8(h)(10)**
|
Sixth Amendment of Employment Agreement between the Company and Thomas Martin, dated January 22, 2003.
|
| |
|
|
10.8(i)(34)**
|
Seventh Amendment to Employment Agreement between the Company and Thomas Martin, dated March 15, 2004.
|
| |
|
|
10.8(j)(38)**
|
Eighth Amendment to Employment Agreement between the Company and Thomas Martin, dated March 3, 2005.
|
| |
|
|
10.8(k)(42)**
|
Ninth Amendment to Employment Agreement between the Company and Thomas Martin dated March 1, 2006.
|
| |
|
|
10.8(l)(44)**
|
Tenth Amendment to Employment Agreement between the Company and Thomas Martin dated January 1, 2007.
|
|
10.8(m)(45)**
|
Eleventh Amendment to Employment Agreement between the Company and Thomas Martin dated March 1, 2007.
|
| |
|
|
10.8(n)(48)**
|
Twelfth Amendment to Employment Agreement between the Company and Thomas Martin dated January 1, 2008.
|
| |
|
|
10.8(o)(49)**
|
Thirteenth Amendment to Employment Agreement between the Company and Thomas Martin dated March 1, 2008.
|
| |
|
|
10.8(p)(52)**
|
Fourteenth Amendment to Employment Agreement between the Company and Thomas Martin dated November 13, 2008.
|
| |
|
|
10.8(q)(53)**
|
Fifteenth Amendment to Employment Agreement between the Company and Thomas Martin dated January 1, 2009.
|
|
10.8(r)(54)**
|
Sixteenth Amendment to Employment Agreement between the Company and Thomas Martin dated March 1, 2009.
|
| |
|
|
10.8(s)(57)**
|
Seventeenth Amendment to Employment Agreement between the Company and Thomas Martin dated January 1, 2010.
|
| |
|
|
10.8(t)(57)**
|
Eighteenth Amendment to Employment Agreement between the Company and Thomas Martin dated February 1, 2010.
|
| |
|
|
10.8(u)(58)**
|
Nineteenth Amendment to Employment Agreement between the Company and Thomas Martin dated March 15, 2010.
|
| |
|
|
10.9(19)**
|
1998 Equity Participation Plan of PriceSmart, Inc.
|
| |
|
|
10.10(a)(52)
|
Letter Agreement between RBTT Bank Ltd. And PriceSmart (Trinidad) Limited dated November 20, 2008.
|
| |
|
|
10.10(b)(56)
|
Line of Credit Agreement between PriceSmart and Bacbamer dated October 14, 2009.
|
| |
|
|
10.11(52)
|
Shareholders’ Agreement between Pricsmarlandco, S.A. and JB Enterprises Inc. dated September 29, 2008.
|
| |
|
|
10.12(52)
|
Shareholder Agreement between Fundacion Tempus Fugit and PriceSmart Panama, S.A. dated September 24, 2008.
|
| |
|
|
10.12(18)
|
Trademark Agreement between the Company and Associated Wholesale Grocers, Inc., dated August 1, 1999.
|
| |
|
|
10.23(17)
|
Master Agreement between the Company and Payless ShoeSource Holdings, Ltd., dated November 27, 2000.
|
| |
|
|
10.29(a)(14)**
|
Employment Agreement between the Company and William Naylon, dated January 16, 2002.
|
| |
|
|
10.29(b)(9)**
|
First Amendment of Employment Agreement between the Company and William J. Naylon, dated January 22, 2003.
|
| |
|
|
10.29(c)(33)**
|
Second Amendment to Employment Agreement between the Company and William Naylon, dated February 1, 2004.
|
| |
|
|
10.29(d)(37)**
|
Third Amendment to Employment Agreement between the Company and William Naylon, dated as of February 16, 2005.
|
| |
|
|
10.29(e)(41)**
|
Fourth Amendment to Employment Agreement between the Company and William Naylon, dated as of January 11, 2006.
|
| |
|
|
10.29(f)(42)**
|
Fifth Amendment to Employment Agreement between the Company and William Naylon, dated as of March 1, 2006.
|
| |
|
|
10.29(g)(44)**
|
Sixth Amendment to Employment Agreement between the Company and William Naylon, dated as of January 1, 2007.
|
| |
|
|
10.29(h)(48)**
|
Seventh Amendment to Employment Agreement between the Company and William Naylon, dated as of January 1, 2008.
|
| |
|
|
10.29(i)(52)**
|
Eighth Amendment to Employment Agreement between the Company and William Naylon, dated as of November 13, 2008.
|
| |
|
|
10.29(j)(53)**
|
Ninth Amendment to Employment Agreement between the Company and William Naylon, dated as of January 1, 2009.
|
| |
|
|
10.29(k)(57)**
|
Tenth Amendment to Employment Agreement between the Company and William Naylon, dated as of January 1, 2010.
|
| |
|
|
10.30(a)(7)**
|
Employment Agreement between the Company and John D. Hildebrandt, dated as of June 1, 2001.
|
|
10.30(b)(7)**
|
Amendment to Employment Agreement between the Company and John Hildebrandt, dated as of October 16, 2001.
|
| |
|
|
10.30(c)(14)**
|
First Amendment of Employment Agreement between the Company and John Hildebrandt, dated January 16, 2002.
|
| |
|
|
10.30(d)(10)**
|
Second Amendment of Employment Agreement between the Company and John Hildebrandt, dated January 22, 2003.
|
|
10.30(e)(34)**
|
Third Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 15, 2004.
|
| |
|
|
10.30(f)(38)**
|
Fourth Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 9, 2005.
|
| |
|
|
10.30(g)(42)**
|
Fifth Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 1, 2006.
|
| |
|
|
10.30(h)(44)**
|
Sixth Amendment to Employment Agreement between the Company and John Hildebrandt, dated January 1, 2007.
|
| |
|
|
10.30(i)(45)**
|
Seventh Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 1, 2007.
|
| |
|
|
10.30(j)(48)**
|
Eighth Amendment to Employment Agreement between the Company and John Hildebrandt, dated January 1, 2008.
|
| |
|
|
10.30(k)(49)**
|
Ninth Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 1, 2008.
|
| |
|
|
10.30(l)(52)**
|
Tenth Amendment to Employment Agreement between the Company and John Hildebrandt, dated November 13, 2008.
|
| |
|
|
10.30(m)(53)**
|
Eleventh Amendment to Employment Agreement between the Company and John Hildebrandt, dated January 1, 2009.
|
|
10.30(n)(54)**
|
Twelfth Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 1, 2009.
|
| |
|
|
10.30(o)(54)**
|
Thirteenth Amendment to Employment Agreement between the Company and John Hildebrandt, dated April 1, 2009.
|
| |
|
|
10.30(p)(57)**
|
Fourteenth Amendment to Employment Agreement between the Company and John Hildebrandt, dated January 1, 2010.
|
| |
|
|
10.30(q)(57)**
|
Fifteenth Amendment to Employment Agreement between the Company and John Hildebrandt, dated February 1, 2010.
|
| |
|
|
10.30(r)(58)**
|
Sixteenth Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 15, 2010.
|
| |
|
|
10.33(22)**
|
2001 Equity Participation Plan of PriceSmart, Inc.
|
| |
|
|
10.43(a)(8)**
|
Employment Agreement between the Company and Edward Oats dated as of January 11, 2000.
|
| |
|
|
10.43(b)(8)**
|
First Amendment to Employment Agreement between the Company and Edward Oats, dated January 24, 2001.
|
| |
|
|
10.43(c)(8)**
|
Amendment to Employment Agreement between the Company and Edward Oats, dated October 16, 2001.
|
| |
|
|
10.43(d)(8)**
|
Second Amendment to Employment Agreement between the Company and Edward Oats, dated January 16, 2002.
|
| |
|
|
10.43(e)(10)**
|
Third Amendment to Employment Agreement between the Company and Edward Oats, dated November 19, 2002.
|
| |
|
|
10.43(f)(10)**
|
Fourth Amendment to Employment Agreement between the Company and Edward Oats, dated January 22, 2003.
|
| |
|
|
10.43(g)(34)**
|
Fifth Amendment to Employment Agreement between the Company and Edward Oats, dated March 15, 2004.
|
| |
|
|
10.43(h)(38)**
|
Sixth Amendment to Employment Agreement between the Company and Edward Oats, dated March 9, 2005.
|
| |
|
|
10.43(i)(42)**
|
Seventh Amendment to Employment Agreement between the Company and Edward Oats, dated March 1, 2006.
|
| |
|
|
10.43(j)(44)**
|
Eighth Amendment to Employment Agreement between the Company and Edward Oats, dated January 1, 2007.
|
| |
|
|
10.43(k)(45)**
|
Ninth Amendment to Employment Agreement between the Company and Edward Oats, dated March 1, 2007.
|
| |
|
|
10.43(l)(48)**
|
Tenth Amendment to Employment Agreement between the Company and Edward Oats, dated January 1, 2008.
|
| |
|
|
10.43(m)(49)**
|
Eleventh Amendment to Employment Agreement between the Company and Edward Oats, dated March 1, 2008.
|
| |
|
|
10.43(n)(52)**
|
Twelfth Amendment to Employment Agreement between the Company and Edward Oats, dated November 13, 2008.
|
| |
|
|
10.43(o)(54)**
|
Thirteenth Amendment to Employment Agreement between the Company and Edward Oats, dated March 1, 2009.
|
| |
|
|
10.44(a)(8)**
|
Employment Agreement between the Company and Brud Drachman, dated as of January 11, 2000.
|
|
10.44(b)(8)**
|
First Amendment to Employment Agreement between the Company and Brud Drachman, dated January 24, 2001.
|
| |
|
|
10.44(c)(8)**
|
Second Amendment to Employment Agreement between the Company and Brud Drachman, dated June 1, 2001.
|
|
10.44(d)(8)**
|
Amendment to Employment Agreement between the Company and Brud Drachman, dated October 16, 2001.
|
| |
|
|
10.44(e)(8)**
|
Third Amendment to Employment Agreement between the Company and Brud Drachman, dated January 16, 2002.
|
|
10.44(f)(10)**
|
Fourth Amendment to Employment Agreement between the Company and Brud Drachman, dated November 19, 2002.
|
| |
|
|
10.44(g)(10)**
|
Fifth Amendment to Employment Agreement between the Company and Brud Drachman, dated January 22, 2003.
|
| |
|
|
10.44(h)(34)**
|
Sixth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 15, 2004.
|
| |
|
|
10.44(i)(38)**
|
Seventh Amendment to Employment Agreement between the Company and Brud Drachman, dated March 9, 2005.
|
| |
|
|
10.44(j)(42)**
|
Eighth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 1, 2006.
|
| |
|
|
10.44(k)(44)**
|
Ninth Amendment to Employment Agreement between the Company and Brud Drachman, dated January 1, 2007.
|
| |
|
|
10.44(l)(45)**
|
Tenth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 1, 2007.
|
| |
|
|
10.44(m)(48)**
|
Eleventh Amendment to Employment Agreement between the Company and Brud Drachman, dated January 1, 2008.
|
| |
|
|
10.44(n)(49)**
|
Twelfth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 1, 2008.
|
|
10.44(o)(52)**
|
Thirteenth Amendment to Employment Agreement between the Company and Brud Drachman, dated November 13, 2008.
|
| |
|
|
10.44(p)(53)**
|
Fourteenth Amendment to Employment Agreement between the Company and Brud Drachman, dated January 1, 2009.
|
| |
|
|
10.44(q)(54)**
|
Fifteenth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 1, 2009.
|
| |
|
|
10.44(r)(57)**
|
Sixteenth Amendment to Employment Agreement between the Company and Brud Drachman, dated January 1, 2010.
|
| |
|
|
10.44(s)(58)**
|
Seventeenth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 15, 2010.
|
| |
|
|
10.46(27)**
|
2002 Equity Participation Plan of PriceSmart, Inc.
|
| |
|
|
10.54(a)(35)**
|
Employment Agreement by and between the Company and Jose Luis Laparte, dated as of June 3, 2004.
|
| |
|
|
10.54(b)(35)**
|
First Amendment to Employment Agreement by and between the Company and Jose Luis Laparte, dated as of August 2, 2004.
|
| |
|
|
10.54(c)(40)**
|
Second Amendment to Employment Agreement between the Company and Jose Luis Laparte, dated as of September 26, 2005.
|
| |
|
|
10.54(d)(42)**
|
Third Amendment to Employment Agreement between the Company and Jose Luis Laparte, dated as of March 1, 2006.
|
| |
|
|
10.54(e)(47)**
|
Fourth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of September 25, 2006.
|
| |
|
|
10.54(f)(44)**
|
Fifth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of January 1, 2007.
|
| |
|
|
10.54(g)(50)**
|
Sixth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of October 1, 2007.
|
| |
|
|
10.54(h)(50)**
|
Seventh Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of October 31, 2007.
|
| |
|
|
10.54(i)(48)**
|
Eighth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of January 1, 2008.
|
| |
|
|
10.54(j)(51)**
|
Ninth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of October 1, 2008.
|
| |
|
|
10.54(k)(52)**
|
Tenth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of November 13, 2008.
|
| |
|
|
10.54(l)(53)**
|
Eleventh Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of January 1, 2009.
|
| |
|
|
10.54(m)(56)**
|
Twelfth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of October 1, 2009.
|
| |
|
|
10.54(n)(57)**
|
Thirteenth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of January 1, 2010.
|
|
10.70(a)(40)
|
Stock Purchase Agreement between the Company and Big Box Sales Ltd. dated November 11, 2005.
|
| |
|
|
10.70(b)(58)
|
Stock Purchase Agreement between PriceSmart Exempt SRL and Brisbane Trading International, Inc. dated May 5, 2010.
|
|
10.71(a)(48)
|
Lease Agreement between Flagler Development Company, LLC and PriceSmart, Inc.
|
| |
|
|
10.71(b)(48)
|
Promissory Note entered into between PSMT Barbados and Citibank, N.A. dated November 15, 2007.
|
| |
|
|
10.71(c)(48)
|
Loan Agreement entered into between PSMT Barbados and Citicorp Merchant Bank Limited dated November 15, 2007.
|
| |
|
|
10.71(d)(56)
|
Loan Agreement entered into between PriceSmart and ScotiaBank El Salvador dated September 1, 2009.
|
| |
|
|
10.71(e)(57)
|
Loan Agreement entered into between PriceSmart Honduras, S.A. de C.V. and ScotiaBank El Salvador S.A., dated January 12, 2010.
|
| |
|
|
10.71(f)(58)
|
Loan Agreement entered into between PriceSmart Honduras, a subsidiary of PriceSmart Inc., and Banco del Pais, S.A. dated March 16, 2010.
|
| |
|
|
10.71(g)(58)
|
PriceSmart Honduras S.A. de C.V. Certificate of Deposit, as security in favor of Banco del Pais, S.A. dated March 16, 2010.
|
| |
|
|
10.71(h)*
|
PriceSmart Panama, S.A. and the bank entity Metrobank, S.A. entered into a Commercial Mortgage Loan Agreement dated August 31, 2010.
|
| |
|
|
10.72(a)(43)**
|
Restricted Stock Award Agreement between the Company and Jose Luis Laparte dated December 7, 2006.
|
|
13.1*
|
Portions of the Company’s Annual Report to Stockholders for the year ended August 31, 2010.
|
| |
|
|
21.1*
|
Subsidiaries of the Company.
|
| |
|
|
23.1*
|
Consent of Independent Registered Public Accounting Firm.
|
| |
|
|
31.1*
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
| |
|
|
31.2*
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
| |
|
|
32.1*#
|
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
| |
|
|
32.2*#
|
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
| |
|
|
*
|
Filed herewith as an exhibit.
|
|
**
|
Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K.
|
|
#
|
These certifications are being furnished solely to accompany this Report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of PriceSmart, Inc. whether made before or after the date hereof, regardless of any general incorporation language in such filing.
|
|
(1)
|
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 1997 filed with the Commission on November 26, 1997.
|
|
(2)
|
Incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form 10 filed with the Commission on July 3, 1997.
|
|
(3)
|
Incorporated by reference to Exhibit 10.14 to Amendment No. 1 to the Registration Statement on Form S-4 of Price Enterprises, Inc. filed with the Commission on November 3, 1994.
|
|
(4)
|
Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q of Price Enterprises, Inc. for the quarter ended June 8, 1997 filed with the Commission on July 17, 1997.
|
|
(5)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 1999 filed with the Commission on July 15, 1999.
|
|
(6)
|
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2000 filed with the Commission on November 29, 2000.
|
|
(7)
|
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2001 filed with the Commission on November 29, 2001.
|
|
(8)
|
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2002 filed with the Commission on November 29, 2002.
|
|
(9)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2003 filed with the Commission on April 14, 2003.
|
|
(10)
|
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2003 filed with the Commission on December 16, 2003.
|
|
(11)
|
Incorporated by reference to the Current Report on Form 8-K filed September 12, 1997 by Price Enterprises, Inc.
|
|
(12)
|
Incorporated by reference to Exhibit 10.8 to Amendment No. 1 to the Company’s Registration Statement on Form 10 filed with the Commission on August 1, 1997.
|
|
(13)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2000 filed with the Commission on April 11, 2000.
|
|
(14)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2002 filed with the Commission on July 15, 2002.
|
|
(15)
|
Incorporated by reference to the Current Report on Form 8-K filed with the Commission on April 1, 2003.
|
|
(16)
|
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 1998 filed with the Commission on November 25, 1998.
|
|
(17)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2001 filed with the Commission on April 16, 2001.
|
|
(18)
|
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 1999 filed with the Commission on November 29, 1999.
|
|
(19)
|
Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 1999 filed with the Commission on April 14, 1999.
|
(20) Incorporated by reference to the Current Report on Form 8-K filed with the Commission on September 5, 2003.
|
(21)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2000 filed with the Commission on July 17, 2000.
|
|
(22)
|
Incorporated by reference to Exhibit A to the definitive Proxy Statement dated December 7, 2001 for the Company’s 2002 Annual Meeting of Stockholders filed with the Commission on December 10, 2001.
|
|
(23)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2002 filed with the Commission on April 15, 2002.
|
|
(24)
|
Incorporated by reference to the Company’s Registration Statement on Form S-3 filed with the Commission on April 18, 2002.
|
|
(25)
|
Incorporated by reference to the Company’s Registration Statement on Form S-3 filed with the Commission on July 19, 2002.
|
|
(26)
|
Incorporated by reference to the Company’s Registration Statement on Form S-3 filed with the Commission on October 25, 2002.
|
|
(27)
|
Incorporated by reference to Exhibit A to the definitive Proxy Statement dated December 11, 2002 for the Company’s 2003 Annual Meeting of Stockholders filed with the Commission on December 11, 2002.
|
|
(28)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2003 filed with the Commission on July 15, 2003.
|
|
(29)
|
Incorporated by reference to the Current Report on Form 8-K filed with the Commission on September 5, 2003.
|
|
(30)
|
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2004 filed with the Commission on November 24, 2004.
|
|
(31)
|
Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended November 30, 2003 filed with the Commission on January 14, 2004.
|
|
(32)
|
Incorporated by reference to the Current Report on Form 8-K filed with the Commission on July 26, 2004.
|
|
(33)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2004 filed with the Commission on April 14, 2004.
|
|
(34)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2004 filed with the Commission on July 15, 2004.
|
|
(35)
|
Incorporated by reference to the Current Report on Form 8-K filed with the Commission on October 8, 2004.
|
|
(36)
|
Incorporated by reference to the Company’s Registration Statement on Form S-3 filed with the Commission on December 2, 2004.
|
|
(37)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2005 filed with the Commission on April 14, 2005.
|
|
(38)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2005 filed with the Commission on June 15, 2005.
|
|
(39)
|
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on August 18, 2005.
|
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(40)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2005 filed with the Commission on January 17, 2006.
|
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(41)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2006 filed with the Commission on April 14, 2006.
|
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(42)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2006 filed with the Commission on July 14, 2006.
|
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(43)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2006 filed with the Commission on January 9, 2007.
|
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(44)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2007 filed with the Commission on April 9, 2007.
|
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(45)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2007 filed with the Commission on July 3, 2007.
|
|
(46)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2004 filed with Commission on January 14, 2005.
|
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(47)
|
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2006 filed with the Commission on November 13, 2006.
|
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(48)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2008 filed with the Commission on April 9, 2008.
|
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(49)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2008 filed
|
|
|
with the Commission on July 10, 2008.
|
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(50)
|
Incorporated by reference to the Company’s Annual Report on Form 10-K/A amendment 2 for the year ended August 31, 2007 filed with the Commission on July 11, 2008.
|
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(51)
|
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2008 filed with the Commission on November 12, 2008.
|
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(52)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q/A for the quarter ended November 30, 2008 filed with the Commission on January 14, 2009.
|
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(53)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2009 filed with the Commission on April 9, 2009.
|
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(54)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2009 filed with the Commission on July 10, 2009.
|
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(55)
|
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2009 filed with the Commission on November 9, 2009.
|
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(56)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2009 filed with the Commission on January 8, 2010.
|
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(57)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2010 filed with the Commission on April 9, 2010.
|
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(58)
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2010 filed with the Commission on July 9, 2010.
|
Schedules not included herein have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.
(b) Financial Statement Schedules
|
|
1)
|
Schedule II – Valuation and Qualifying Accounts and Reserves for each of the three years in the period ended August 31, 2010.
|
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule
The Board of Directors and Stockholders of PriceSmart, Inc.
We have audited the consolidated financial statements of PriceSmart, Inc. as of August 31, 2010 and 2009, and for each of the three years in the period ended August 31, 2010, and have issued our report thereon dated November 9, 2010. Our audits also included the financial statement schedule listed in Item 15(b)1. This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as whole, presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
San Diego, California
November 9, 2010
SCHEDULE II
PRICESMART, INC.
VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
| |
Balance at
Beginning
of Period
|
|
Charged to
Costs and
Expenses
|
|
Deductions
|
|
Balance at
End of
Period
|
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Allowance for doubtful accounts:
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Year ended August 31, 2008
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Year ended August 31, 2009
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Year ended August 31, 2010
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(1)
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Expenses and deduction principally consist of $530,000 write-off of receivables pursuant to a Settlement Agreement and Release with PSC, S.A. (“PSC”).
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
|
Dated: November 9, 2010
|
PRICESMART, INC.
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| |
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By:
|
/s/ JOSE LUIS LAPARTE
|
| |
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Jose Luis Laparte |
| |
|
Director, Chief Executive Officer and President
|
| |
|
(Principal Executive Officer)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
|
/s/ JOSE LUIS LAPARTE
|
Director, Chief Executive Officer
|
November 9, 2010
|
|
Jose Luis Laparte
|
and President
|
|
| |
(Principal Executive Officer)
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|
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/s/ JOHN M. HEFFNER
|
Executive Vice President and Chief
|
November 9, 2010
|
|
John M. Heffner
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Financial Officer
|
|
| |
(Principal Financial Officer and
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| |
Principal Accounting Officer)
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/s/ ROBERT E. PRICE
|
Chairman of the Board
|
November 9, 2010
|
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Robert E. Price
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/s/ GONZALO BARRUTIETA
|
Director
|
November 9, 2010
|
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Gonzalo Barrutieta
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/s/ KATHERINE L. HENSLEY
|
Director
|
November 9, 2010
|
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Katherine L. Hensley
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/s/ LEON C. JANKS
|
Director
|
November 9, 2010
|
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Leon C. Janks
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/s/ LAWRENCE B. KRAUSE
|
Director
|
November 9, 2010
|
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Lawrence B. Krause
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/s/ KEENE WOLCOTT
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Director
|
November 9, 2010
|
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Keene Wolcott
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/s/ EDGAR ZURCHER
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Director
|
November 9, 2010
|
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Edgar Zurcher
|
|
|
Exhibit 13.1
PRICESMART, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
OTHER INFORMATION
AUGUST 31, 2010
PRICESMART, INC.
The selected consolidated financial data presented below is derived from the Company's consolidated financial statements and accompanying notes. This selected financial data should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes thereto included elsewhere in this report.
| |
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Years Ended August 31,
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2010
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2009
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2008
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2007
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2006
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(in thousands, except income (loss) per common share)
|
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|
OPERATING RESULTS DATA:
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Total selling, general and administrative
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Asset impairment and closure costs (gains)
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Provision for settlement of pending litigation
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Income from continuing operations before provision for income taxes, losses of unconsolidated affiliates and net income attributable to noncontrolling interests
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Provision for income taxes
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Losses of unconsolidated affiliates(2)
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Net income attributable to noncontrolling interests
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Net income from continuing operations attributable to PriceSmart
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Discontinued operations income (loss), net of tax
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Net income attributable to PriceSmart
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INCOME PER COMMON SHARE -BASIC:(3)
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Income from continuing operations attributable to PriceSmart
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Discontinued operations, net of tax
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Basic net income per common share attributable to PriceSmart
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INCOME PER COMMON SHARE -DILUTED:(3)
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Income from continuing operations attributable to PriceSmart
|
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Discontinued operations, net of tax
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Diluted net income per common share attributable to PriceSmart
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Weighted average common shares - basic
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Weighted average common shares - diluted
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BALANCE SHEET DATA:
|
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Cash and cash equivalents
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Short-term restricted cash
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Total PriceSmart stockholders’ equity
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Dividends paid on common stock(5)
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(1)
|
Net interest and other income (expense) includes interest income and expense and gains and losses on disposal of assets.
|
|
(2)
|
Includes impairment charges of $2.6 million in fiscal year 2007.
|
|
(3)
|
Effective September 1, 2009, the Company adopted Financial Accounting Standards Board guidance that addresses whether instruments granted in share-based payment transactions are participating securities and, therefore, have a potential dilutive effect on earnings per share (“EPS”). This guidance was applied retrospectively to all periods presented. In previously reported periods, diluted net income per share was computed using the treasury stock method to calculate the dilutive common shares outstanding during the period. This method resulted in diluted income per share from continuing operations attributable to PriceSmart, Inc. of $1.68, $1.45, $1.30, $0.44 and $0.43 for the fiscal years 2010, 2009, 2008, 2007 and 2006 respectively.
|
|
(4)
|
Long-term debt, net of current portion.
|
|
(5)
|
On January 27, 2010, January 29, 2009, January 24, 2008 and February 7, 2007, the Company declared a cash dividend on its common stock.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report contains forward-looking statements concerning the Company's anticipated future revenues and earnings, adequacy of future cash flow and related matters. These forward-looking statements include, but are not limited to, statements containing the words “expect,” “believe,” “will,” “may,” “should,” “project,” “estimate,” “anticipated,” “scheduled,” and like expressions, and the negative thereof. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the following risks: the Company's financial performance is dependent on international operations which exposes the Company to various risks; any failure by the Company to manage its widely dispersed operations could adversely affect its business; the Company faces significant competition; the Company may encounter difficulties in the shipment of, and risks inherent in the acquisition and importation of, merchandise to its warehouse clubs; the Company is exposed to weather and other natural disaster risks; declines in the economies of the countries in which the Company operates its warehouse clubs would harm its business; a few of the Company's stockholders own nearly 39% of the Company's voting stock, which may make it difficult to complete some corporate transactions without their support and may impede a change in control; the loss of key personnel could harm the Company's business; the Company is subject to volatility in foreign currency exchange; the Company faces the risk of exposure to product liability claims, a product recall and adverse publicity; a determination that the Company's long-lived or intangible assets have been impaired could adversely affect the Company's future results of operations and financial position; although the Company takes steps to continuously review, enhance, and implement improvements to its internal controls, there may be material weaknesses or significant deficiencies that the Company has not yet identified; as well as the other risks detailed in the Company's U.S. Securities and Exchange Commission (“SEC”) reports, including the Company's Annual Report on Form 10-K filed for the fiscal year ended August 31, 2010 filed pursuant to the Securities Exchange Act of 1934.
The following discussion and analysis compares the results of operations for each of the three fiscal years ended August 31, 2010, 2009 and 2008 and should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this report.
PriceSmart's mission is to efficiently operate U.S.-style membership warehouse clubs in Latin America and the Caribbean that sell high quality goods and services to its retail and wholesale members at low prices, while providing good wages and benefits to PriceSmart employees and a fair return to PriceSmart stockholders. The Company sells U.S. brand-name, private label, locally sourced and imported products to its small business and consumer members in a warehouse club format, providing high value to its members. By focusing on providing high value on quality merchandise in a low-cost operating environment, the Company seeks to grow sales volume and membership, which in turn will allow for further efficiencies and price reductions and ultimately improved value to its members.
PriceSmart's business consists primarily of international membership shopping warehouse clubs similar to, but smaller in size than, warehouse clubs in the United States. The number of warehouse clubs in operation as of August 31, 2010 and 2009, the number of warehouse clubs the Company expects to open in 2011, the Company's ownership percentages and basis of presentation for financial reporting purposes by each country or territory are as follows:
|
Country/Territory
|
|
Number of
Warehouse Clubs
in Operation (as of August 31, 2010)
|
|
|
Number of
Warehouse Clubs
in Operation (as of
August 31, 2009)
|
|
Anticipated warehouse
club openings
in FY 2011
|
|
Ownership (as of
August 31, 2010)
|
|
Basis of
Presentation
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During fiscal year 2009, the Company acquired property and completed the construction of a new Costa Rica warehouse club, the fifth warehouse club in that country, which opened in April 2009. Also during fiscal year 2009, the Company acquired property in Panama and Trinidad. The Company completed construction of and opened a new Panama warehouse club ("Brisas") in April 2010. The Panama warehouse club, previously located at Los Pueblos was closed and relocated to this new site. The Los Pueblos site is currently being leased with the lessee having an option to buy. The Company completed construction of and opened a new warehouse club in Trinidad ("San Fernando") in April 2010, bringing the number of warehouse clubs in Trinidad to four.
During fiscal year 2010, the Company constructed a new warehouse club on its 322,920 square foot site in Santo Domingo, Dominican Republic (“Arroyo Hondo”), which was acquired in December 2009. The Company opened this new warehouse club on November 5, 2010. It is the second warehouse club in Santo Domingo and the third in the Dominican Republic. On June 18, 2010 the Company entered into a contract to purchase approximately 210,000 square feet of land in Barranquilla, Colombia for approximately 11.7 billion Colombian Pesos. In consideration of certain additional land improvements the total purchase price thereafter was increased to 12.1 billion Colombian Pesos (the equivalent of approximately $6.7 million United States Dollars as of August 31, 2010). The Company plans to construct on this site a new membership warehouse club, expected to open during the summer of 2011. As of August 31, 2010 the Company has paid to the seller $55,000. The Company expects to acquire this land in November 2010, at which time the Company will pay the additional sum of approximately $4.3 million. Upon the completion of certain improvements, expected to occur by March 2011, the Company would then make the final payment of approximately $2.3 million.
At the end of August 2010, the total number of warehouse clubs in operation was 27 operating in 11 countries and one U.S. territory, in comparison to 26 warehouse clubs operating in 11 countries and one U.S. territory at the end of August 2009. The average age of the 27 warehouse clubs in operation was 102 months as of August 31, 2010 and the average age of the 26 warehouse clubs in operation was 94 months as of August 31, 2009.
During the third quarter of fiscal year 2010, the Company purchased the remaining 5% noncontrolling interest of its Trinidad subsidiary.
In addition to the warehouse clubs operated directly by the Company, there is one warehouse club in operation in Saipan, Micronesia licensed to and operated by local business people, from which the Company earns a small royalty fee.
In general, the Company’s earnings improve and cash flows from operations increase as sales increase. Although the Company’s cost of goods sold is largely variable with sales, a portion of the Company’s selling, general and administrative expenses rise relatively slowly in relation to sales increases. Therefore, the Company prioritizes initiatives that it expects will have the greatest impact on increasing sales. Looking forward to the next several quarters, the following items are likely to have an impact on business and the results of operations:
General Economic Factors
The economic slowdown in the U.S. and other major world economies had a negative effect on consumer spending in the countries where PriceSmart operates in the second half of fiscal year 2009 and the first few months of fiscal year 2010. Lower expatriate remittances, reduced U.S. demand for exports from Latin America (particularly affecting the assembly (“maquila”) export sector in Guatemala, Honduras and the Dominican Republic), and reduced tourism from the U.S. and Europe (particularly affecting Caribbean markets) contributed to a generally weak economic environment in many of the Company’s markets. The Company began to see signs of improving consumer spending in its warehouse clubs in the second quarter of fiscal year 2010, and those positive trends continued through the second half of the fiscal year. These include:
|
·
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Sales of non-consumable merchandise continued to increase in the fourth fiscal quarter after declining through much of fiscal year 2009 when compared to the same quarter in the prior year. The three most recent fiscal quarters (quarter 2, quarter 3 and quarter 4) have seen a year over year increase in non-consumable merchandise sales of 8.5%, 16.4% and 27.0%, respectively.
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The decline in the dollar value of the average transaction, which had been 3.2%, 4.8%, and 4.1% in the last two quarters of fiscal year 2009 and the first quarter of fiscal year 2010, respectively, declined only 0.6% in the second quarter of fiscal year 2010, and registered an increase of 4.3% and 5.6% in the third and fourth quarters of fiscal year 2010, respectively, compared to the same quarters in the previous fiscal year.
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Comparable warehouse club sales percentage growth has been generally trending upward over the past 11 months from a negative growth rate of 1.1% in September 2009 to a reduced negative growth rate of 0.3% in October 2009 followed by positive comparable warehouse club sales growth rates ranging from 0.8% in November 2009 to 16.8% in August 2010.
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The Company believes that consumer spending may have stabilized and may be increasing in some of its markets, most notably Costa Rica, Honduras, and Panama, which has had a positive effect on sales over the past 9 months and may continue to have a positive effect on sales as we enter fiscal year 2011.
Many PriceSmart markets are susceptible to foreign currency exchange rate volatility. Currency exchange rate changes either increase or decrease the cost of imported products and can have an effect on the reported sales of the consolidated company when local currency denominated sales are translated to U.S. dollars. In addition, the Company revalues all U.S. dollar denominated liabilities within those markets that do not use the U.S. dollar as its functional currency. These liabilities include, but are not limited to, the value of items shipped from the U.S. to the Company’s foreign markets. Approximately 48% of the Company’s net warehouse sales are comprised of products imported into the markets where PriceSmart warehouse clubs are located. Products imported for sale in PriceSmart markets are purchased in U.S. dollars, but approximately 78% of the Company’s net warehouse sales are in foreign currencies. In general, local currencies in PriceSmart markets have declined relative to the dollar, but the Costa Rican colon, Jamaican dollar and Guatemalan quetzale appreciated relative to the U.S. dollar through much of fiscal year 2010. The Company adjusts prices on U.S. dollar goods on a periodic basis to maintain its target margins after taking into account changes in exchange rates. As a result, declines in local currencies relative to the U.S. dollar effectively increase the cost to the Company’s members of imported products, while appreciation in local currencies makes imported products more affordable. The Company believes that the appreciation of the Costa Rican, Jamaican and Guatemalan currencies has had a positive impact on the sales of imported products during the past year. With respect to locally acquired merchandise sold in the Company’s warehouse clubs, which accounts for approximately 52% of net warehouse sales, the Company’s margins are not affected by changes in exchange rates and therefore the Company does not adjust prices of these products to address changes in exchange rates. However, in the case of locally acquired merchandise, a decline in local currency rates relative to the U.S. dollar will decrease the reported year over year sales of the Company when expressed in U.S. dollars. Conversely, a strengthening of local currency rates relative to the U.S. dollar will increase the reported year over year sales. With respect to the revaluation of monetary assets and liabilities, the Company recognizes the revaluation (either positive or negative) as an element of net warehouse cost of goods sold and indicates the dollar value of that revaluation, net of reserves, in the discussion on warehouse gross margins. The Company seeks to reduce U.S. dollar denominated liabilities by obtaining local currency loans from banks within certain markets where it is economical to do so and where the risk of devaluation or the level of U.S. dollar denominated liabilities is high. For example, last fiscal year, the Company instituted a local currency denominated long term loan in Honduras ($6.0 million, U.S. dollar equivalent). The Company also has local currency denominated long term loans in Guatemala and Barbados. The Company is not aware of any material trends or uncertainties regarding the currencies of any other markets that the Company expects will have a material impact on the Company or its operations in future periods. However, there is no way to accurately forecast how currencies may trade in the future and, as a result the Company cannot accurately project the impact of the change in rates on the Company’s future demand for imported products, reported sales, or financial results.
Current and Future Management Actions
The Company has undertaken or is planning several significant expansions, reconfigurations and/or fixture upgrades of existing warehouse clubs. These include the expansion of the warehouse clubs in Aruba and Port of Spain, Trinidad that were finalized in fiscal year 2010, adding approximately 9,000 and 900 square feet of sales floor space, respectively. In fiscal year 2010, the Company also completed the expansion of the receiving area within San Pedro Sula, Honduras, adding approximately 700 square feet of receiving space to the facility and completed significant upgrades to fixtures within the Barbados warehouse club, including the completion of a new produce overstock cooler in the third quarter of fiscal year 2010. The Company has plans to expand, reconfigure, and/or upgrade clubs and/or fixtures in clubs in several more locations over the next 12 months. Such plans include: expansion of the Barbados warehouse club sales floor space by approximately 10,000 square feet; expansion of the bakery in the Nicaragua warehouse club by approximately 970 square feet; expansion of the bakery in the Tegucigalpa, Honduras warehouse club by approximately 400 square feet; remodeling the fresh foods area within the Port of Spain, Trinidad warehouse club; expansion of the overstock freezer in the Llorente, Costa Rica warehouse club by approximately 588 square feet, and expansion of the Santo Domingo, Dominican Republic central offices by approximately 900 square feet. The Company will invest approximately $3.4 million for these items and believes that these expansions, reconfigurations, and/or upgrades will provide for more selling space, increased capacity for stocking merchandise in its warehouse clubs and added administrative spaces.
During fiscal year 2010, the Company opened a free trade zone distribution center in Miami, Florida and closed the Panama distribution center for much of the merchandise which ships from Asia. Similar to the arrangement in the Panama distribution center, the Company will incur distribution charges on a per unit basis at the Miami free trade zone distribution center. This change resulted in a more efficient and cost effective movement of merchandise to the Company’s markets. The Company also entered into a lease amendment for its Miami frozen distribution center on August 31, 2009, providing for an additional 5,000 square feet of frozen and refrigerated space. The Company recently renegotiated its existing lease for its primary distribution center in Miami, adding approximately 74,000 square feet of warehouse space to this facility. The Company will invest approximately $3.0 million to upgrade and ready this warehouse space and projects that the construction activities related to these upgrades will be completed by the second half of fiscal year 2011. The Company intends to utilize this area to consolidate its dry, frozen and refrigerated merchandise distribution facilities. This will allow the Company to more efficiently service the PriceSmart warehouse club locations and realize savings in distribution expenses by improving the flow of merchandise through the facility and reducing handling costs. The Company continues to evaluate its distribution processes to improve the efficiency and cost effectiveness of shipping merchandise from suppliers to the warehouse clubs.
The Company offers a co-branded credit card to PriceSmart members in Latin America in cooperation with a bank in the region, Credomatic. During fiscal year 2009, the Company introduced the co-branded program in its Caribbean markets, except for Aruba, in cooperation with a bank in that region, Scotiabank. The programs allow for savings in credit card processing fees when the co-branded card is used at the warehouse club as well as providing benefits to club members. Management anticipates that as more members obtain and use the card, the Company will see increased savings related to credit card costs. Working with Credomatic and Scotiabank, the Company seeks to increase the use of the co-branded cards in those markets in the future. In the most recent fiscal year, bank and credit card expenses improved three basis points as a percentage of sales compared to the prior fiscal year.
The Company has an on-going process to evaluate sites for additional PriceSmart locations. Although a specific target for new warehouse club openings beyond fiscal year 2011 has not been set, management believes that there are opportunities to add locations in certain PriceSmart markets. On November 5, 2010, the Company opened a new warehouse club on its 322,920 square foot site in Santo Domingo, Dominican Republic (“Arroyo Hondo”), which was acquired in December 2009. It is the Company’s second warehouse club in Santo Domingo and the third in the Dominican Republic. On June 18, 2010 the Company entered into a contract to purchase approximately 210,000 square feet of land in Barranquilla, Colombia for approximately 11.7 billion Colombian Pesos. In consideration of certain additional land improvements the total purchase price thereafter was increased to 12.1 billion Colombian Pesos (the equivalent of approximately $6.7 million United States Dollars as of August 31, 2010). The Company plans to construct on this site a new membership warehouse club, expected to open during the summer of 2011. As of August 31, 2010 the Company has paid to the seller $55,000. The Company expects to acquire this land in November 2010, at which time the Company will pay the additional sum of approximately $4.3 million. Upon the completion of certain improvements, expected to occur by March 2011, the Company would then make the final payment of approximately $2.3 million. The Company believes that Colombia could be a market for multiple PriceSmart warehouse clubs.
Most PriceSmart real estate is owned rather than leased. Real estate ownership provides a number of advantages as compared to leasing, including lower operating expenses, flexibility to expand, or otherwise enhance, PriceSmart buildings, long-term control over the use of the property and the residual value that the real estate may have in future years. In the course of acquiring sites, the Company may have to purchase more land than is actually needed for the warehouse club operation. As an example, the Company’s acquisition of the Alajuela site in Costa Rica included the purchase of land for the PriceSmart warehouse club and a joint venture with the seller on the balance of the property. PriceSmart entered into a similar real estate transaction with respect to its recently opened Brisas site in Panama City. To the extent that the Company acquires property in excess of what is needed for a particular warehouse club, the Company generally plans to either sell or develop the excess property. The excess land at Alajuela and Brisas are being held for development by the joint ventures. A similar development strategy is being employed for the Company’s excess land at the new San Fernando, Trinidad and Arroyo Hondo, Dominican Republic locations where the properties are fully owned by PriceSmart. The profitable sale or development of real estate is highly dependent on real estate market conditions. The Company believes that it will find suitable tenants or acquirers in the future for its other property development projects.
Key items for fiscal year 2010 included:
Net warehouse club sales increased 11.6% over the prior year, resulting from a 8.2% increase in comparable warehouse club sales for the 53 weeks ended September 5, 2010 (that is, sales in warehouse clubs that have been open for greater than 13 1/2 calendar months), the full year effect of the opening of a new warehouse club in Costa Rica in April 2009, and the opening of a new warehouse club in Trinidad in April 2010, which was open for just a portion of the twelve months ended August 31, 2010.
Membership income for fiscal year 2010 increased 10.3% to $19.7 million as a result of a 10% increase in membership accounts from August 31, 2009 to August 31, 2010, continued strong renewal rates at 86% and a 0.5% decrease in the average membership fee.
Gross profits (net warehouse club sales less associated cost of goods sold) increased 16.5% over the prior year due to increased warehouse sales, and gross margin increased 65 basis points as a percentage of net warehouse sales as a result of the positive effect of foreign exchange rate movements, reduced markdowns, improved shrink results, and end-cap income.
Selling, general and administrative expenses improved 23 basis points as a percentage of net warehouse sales compared to the same period last year, as higher sales offset the incremental costs associated with opening an additional warehouse club and the effect of higher payroll and utility costs in comparable warehouse clubs.
Operating income for fiscal year 2010 was $74.9 million, which included approximately $1.1 million of pre-opening expenses.
Net income attributable to PriceSmart for fiscal year 2010 was $49.3 million, or $1.65 per diluted share.
Comparison of Fiscal Year 2010 to 2009 and Fiscal Year 2009 to 2008
Certain percentages presented are calculated using actual results prior to rounding. The Company’s fiscal year ends on August 31. Unless otherwise noted, references to net income relate to net income attributable to PriceSmart. Unless otherwise noted, all tables present dollar amounts in thousands.
Net Warehouse Club Sales
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Fiscal Years Ended August 31,
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2010
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2009
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2008
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Amount
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% Change
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Amount
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% Change
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Amount
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Comparison of 2010 to 2009
For fiscal year 2010, the Company’s warehouse club in Alajuela, Costa Rica was in operation for the full twelve months of the year, compared to approximately four months in fiscal year 2009. In addition, the Company’s newest warehouse club in San Fernando, Trinidad was opened on April 30, 2010 and contributed four full months of sales in the current fiscal year. Sales from these additional clubs contributed approximately 390 basis points to the overall sales growth of fiscal year 2010 from fiscal year 2009. The Company experienced strong sales in a number of merchandise categories as a result of the World Cup soccer tournament during the months of April, May and June. In addition, the strength of the Costa Rican currency relative to the U.S. dollar has made the imported merchandise relatively more affordable and contributed to increased demand in the Company’s largest single market. The Costa Rican colon appreciated approximately 13.6% against the U.S. dollar from the end of fiscal year 2009 to the end of fiscal year 2010. Sales of non-consumable merchandise continued to show improvement through the fiscal year and ended the year with growth of 11.7% compared to fiscal year 2009. The Company had experienced negative sales growth in the last two quarters of fiscal year 2009 and the first quarter of fiscal year 2010 compared to the same quarter in the prior year in this merchandise category but saw growth of 8.5%, 16.4% and 27.0% in the second, third, and fourth quarters of fiscal year 2010, respectively, compared to the same quarter in the prior year. Sales transactions in the year grew 10.2% compared to the prior year and the average dollar value of those transactions increased by 1.3%.
Comparison of 2009 to 2008
For fiscal year 2009, the Company experienced greater sales growth in the first half of the fiscal year, compared to that experienced in the second half of the fiscal year. This is partly due to the inclusion of two warehouse clubs opened in November and December of 2008, but also reflects the economic slowdown within the countries in which the Company operates during the second half of fiscal year 2009, despite the addition of a new warehouse club opened in Alajuela, Costa Rica at the end of April 2009. The Company experienced year over year sales growth of 21.9% in the first quarter, 14.1% in the second quarter, 8.0% in the third quarter, and 4.3% in the fourth quarter of fiscal year 2009. For the full year, sales transactions grew 12.1%, compared to fiscal year 2008, which the Company believes reflects that its members continue to find value in the quality and price of items offered by PriceSmart in spite of the challenging economic conditions present in most of the markets. However, the average dollar value of those transactions decreased 0.5% indicating both a shift in buying from higher ticket discretionary items (such as appliances, electronics, and furniture) to food and consumable products; and is also likely a reflection of reduced overall buying power. Food and consumable sales grew 15.6%, and non-consumable product sales decreased 1.9%. The full year inclusion of the two warehouse clubs opened in November and December 2008, respectively, added approximately 200 basis points to the overall sales growth in the fiscal year. Also, the addition of the new club in Costa Rica, which opened on April 17, 2009, accounted for approximately 140 basis points of the overall sales growth during the year compared to a year ago, although some of those sales were from existing members who would have previously shopped at one of the other four Costa Rican clubs.
Comparable Sales
The Company reports comparable warehouse club sales on a “same week” basis with 13 weeks in each quarter beginning on a Monday and ending on a Sunday. The periods are established at the beginning of the fiscal year to provide as close a match as possible to the calendar month that is used for financial reporting purposes. This approach equalizes the number of weekend days and week days in each period for improved sales comparison, as the Company experiences higher warehouse club sales on the weekends. Further, each of the warehouse clubs used in the calculations was open for at least 13 1/2 calendar months before its results for the current period were compared with its results for the prior period. For example, the sales related to the new warehouse club opened in Trinidad on April 30, 2010 will not be used in the calculation of comparable warehouse club sales until July 2011. Similarly, the sales related to the Costa Rican warehouse club, which opened on April 17, 2009 will be included in the calculation of comparable warehouse club sales in July 2010. Approximately every five years, the Company uses a 53-week year to account for the fact that 52 weeks is only 364 days. For purposes of the same store calculation, the Company compared the 53-weeks ended August 31, 2010 with the 53 weeks ended August 31, 2009.
Comparison of 2010 to 2009
For fiscal year 2010, comparable warehouse club sales, which are for warehouse clubs open at least 13 1/2 full months, increased 8.2% for the 53-week period ended September 5, 2010, compared to the same 53-week period last year.
Comparison of 2009 to 2008
For fiscal year 2009, comparable warehouse club sales increased 8.7% for the 52-week period ended August 30, 2009, compared to the same 52-week period in the prior year.
Net Warehouse Club Sales by Segments
The following tables indicate the net warehouse club sales and the percentage growth in net warehouse club sales during fiscal years 2010, 2009 and 2008 in the segments in which the Company operates.
As of August 31, 2010 the Company changed the “Central America” operating segment to the “Latin America” operating segment to reflect the inclusion of Colombia within the general geographic area of the Company’s operations.
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Fiscal Years Ended August 31,
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2010
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2009
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2008
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Amount
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% of net
revenue
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Amount
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% of net
revenue
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Amount
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% of net
revenue
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Fiscal Years Ended August 31,
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2010
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2009
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Year on year increase
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% change
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Year on year increase
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% change
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Comparison of 2010 to 2009
The higher net warehouse club sales in Latin America compared to Caribbean reflects improved economic conditions in those more diversified markets, particularly Costa Rica. Also the opening of the Alajuela, Costa Rica warehouse club contributed an additional eight months of sales (420 basis points) to the Latin America segment in fiscal 2010, compared to fiscal 2009; whereas, the opening of the San Fernando, Trinidad warehouse club contributed only an additional four months of sales (350 basis points) in fiscal 2010 compared to fiscal 2009.
Comparison of 2009 to 2008
The higher net warehouse club sales in Latin America and the Caribbean reflect the strong economic conditions during the first six months of fiscal year 2009 that were partially offset by the weakening economies within these markets in the second half of fiscal year 2009 due to the world wide economic crisis. Also contributing to the increased net warehouse club sales is the full year inclusion of the two warehouse clubs, one in Guatemala and one in Trinidad, opened in November and December of fiscal year 2008, respectively, that added approximately 2% to the overall sales growth during fiscal year 2009 and the addition of the new warehouse club in Costa Rica, that opened on April 17, 2009, that also added approximately 2% to the overall sales growth in fiscal year 2009.
Net Warehouse Club Sales by Category
The following table indicates the approximate percentage of net sales accounted for by each major category of items sold by the Company during the fiscal years ended August 31, 2010, 2009 and 2008.(1)
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Fiscal Years Ended
August 31,
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2010
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2009
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2008
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Sundries (including health and beauty aids, tobacco, alcoholic beverages, soft drinks, cleaning and paper products and pet supplies)
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Food (including candy, snack foods, dry and fresh foods)
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Hardlines (including major appliances, small appliances, electronics, hardware, office supplies, garden and patio, sporting goods, business machines and automotive supplies)
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Softlines (including apparel, domestics, cameras, jewelry, housewares, media, toys and home furnishings)
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Other (including one-hour photo and food court)
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(1)
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During fiscal year 2010, the Company reviewed and updated its product classification into major categories. This review and update of the classification of products into categories was performed to better align the products and reporting on those products with the Company’s management oversight of these major categories. The Company has retrospectively reclassified the approximate percentage of net sales accounted for by each major category for each of the periods presented based on the updated product assignment into these major categories.
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Comparison of 2010 to 2009
The Company did not experience any significant shift in its merchandise mix when measured over the entire fiscal year. However, during the first quarter of fiscal year 2010, the Company saw a continuation of the shift toward more consumable items which started in fiscal year 2009. Since then, the sales of non-consumable (largely hardlines) merchandise has grown at a faster rate than sales in total, resulting in no net change in the percentage of net sales across the major merchandise categories.
Comparison of 2009 to 2008
The Company experienced a 3% downward shift in the merchandise mix of its hardlines and softlines, offset by an increase in the food and sundries merchandise. This was largely a result of a consumer spending shift due to the slowdown in the economies within the Company’s markets.
Export Sales
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Fiscal Years Ended August 31,
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Increase from
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%
Change
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Amount
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Increase from
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%
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Amount
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The increases in export sales in both years were due to increased direct sales to a single institutional customer (retailer) in the Philippines.
Membership Income
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Fiscal Years Ended August 31,
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2010
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2009
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2008
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Amount
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Increase from
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%
Change
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Amount
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Increase from
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%
Change
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Amount
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Membership income % to net warehouse club sales
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Comparison of 2010 to 2009
For fiscal year 2010, the increase in membership income reflects both a 10% increase in the number of membership accounts and a 0.5% decrease in the average membership fee.
Comparison of 2009 to 2008
For fiscal year 2009, the increase in membership income reflects both an 8% increase in the number of membership accounts and a 1.4% increase in the average membership fee.
Other Income
Other income consists of commission revenue, rental income, advertising revenue, construction revenue, fees for in-store product demonstrations, end-cap income, and fees earned from licensees.
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Fiscal Years Ended August 31,
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2010
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2009
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2008
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Amount
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Increase from
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%
Change
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Amount
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Increase from
prior year
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%
Change
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Amount
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Comparison of 2010 to 2009
For fiscal year 2010, the increase over fiscal year 2009 was due primarily to increased revenue received for in-store product demonstrations.
Comparison of 2009 to 2008
For fiscal year 2009, the increase over fiscal year 2008 was due primarily to increased revenue for in-store product demonstrations and rental income.
Gross Margin
Warehouse Sales Gross Profit Margin
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Fiscal Years Ended August 31,
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2010
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2009
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2008
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Amount
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Increase from
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% to sales
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Amount
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Increase from
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% to sales
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Amount
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% to sales
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Less associated cost of goods sold
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Warehouse gross profit margin
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